Thursday, May 23, 2013

Spending the recession away

The second estimate of the statistical office confirmed that the German economy avoided a technical recession (of two consecutive negative quarters) only barely. GDP growth in the Eurozone’s biggest economy came in at 0.1% QoQ in the first quarter, from a 0.7% decline in the last quarter of 2012. Growth was driven by private consumption (up by 0.8% QoQ), while investments were down by 2.4% QoQ, mainly driven by a sharp decline in construction. Net exports still contributed 0.1 pp to first quarter growth.

German consumers remain the silent helpers of the economy. Often forgotten, ignored and labelled as had-beens, German consumers have become an important growth driver. In fact, private consumption grew in each since quarter since 1Q 2012.

Looking ahead, all ingredients are in place to see a continuation of solid consumption. The labour market remains stable. Contrary to the rest of the Eurozone, German unemployment has hardly increased (yet) and employment remains close to its record highs. In addition, the increase in real wages, which started last year, should accelerate this year, driven by nominal wage increases of around 3% and low inflation. It therefore does not come as a surprise that this morning’s GfK index posted another increase, pushing German consumer confidence to its highest level since 2007.

Unfortunately, the positive trend of private consumption is anything but a spending spree and Germans are still unlikely to become a bunch of shopaholics. This means that despite all delight, this morning’s data also hold an inconvenient truth which interdicts any euphoria:  without its exports, the German economy is currently only like a sports car without sixth gear.


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